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How to Break Into the Green Energy Business
Nearly $50 billion of the federal stimulus package last year went to promoting energy efficiency and investments in renewable industry, according to the Center for American Progress. This year, President Barack Obama in his 2011 State of the Union address proposed a deadline of 2035 for 80 percent of America's energy to be supplied by clean or renewable sources. And it's becoming clear at state and local levels that more cash assistance and tax credits will become available as governments try to incentivize their constituents to go green.
"There's a lot of interest in green energy," says Al Titone, deputy district director of the Small Business Administration's New York District Office. "With the government putting money into it, that pretty much guarantees there's going to be more of a market for it in the future.
"It's the way of the future," he adds. "It's been bubbling for a number of years, and now it seems to be coming to a boil."
Nearly every state has programs incentivizing home- and business-owners to make their buildings more energy efficient. With ample grant money and tax incentives up for grabs (not to mention imminent new efficiency requirements), businesses and homeowners are turning to an array of businesses—contractors, landscapers, window and door manufacturers—to install changes. Here's how to do business in the growing field of renewable energy.
Breaking Into the Green Energy Business: Find Your Niche
The modern green energy industry covers myriad micro-sectors. "There's no one area," Titone says. "Everyday it's becoming more diverse, the things that can be done from a green standpoint." Titone says there is definite business to be had in green energy, but, he warns, "Don't just jump in. (Small businesses) need to do their research; otherwise they can get into trouble."
"One of the biggest barriers to entering the renewable energy industry is you have to know something about electricity," says Mark Holmes, co-founder of Green Wave Energy, a renewable-products manufacturer in Newport Beach, California. "Most people have no working knowledge of electricity."
Renewable energy may evoke images of the wind farms spanning acres, but manufacturing those products requires serious capital investment, Holmes says. "It's very hard to do," he says. "It takes lots and lots and lots of money and time and sweat going into it." Green Wave's products are essentially power generators that run on renewable sources. After $8 million in cash, personnel, and technology investments since October 2008, the company has some big prospects in the industrial sector. But, Holmes says, that's atypical. "You have to come up with something different, and something different that works."
The periphery of green energy has lower start-up costs for small business while keeping the profit potential. Holmes suggests businesses looking to get into renewable energy explore sales, installation, or research and development with the intent to sell an idea to a manufacturer. "We have over 100 people selling our stuff," Holmes said. "That's the fun part. We're the ones doing the hard part—manufacturing, service, making sure everything works."
Due to significant capital requirements, most renewable energy operations are supported by large companies, such as Pacific Power in the Northwest, that are expanding the green in their energy portfolio—but therein lies potential. Half of Pacific Power's portfolio is coal, and another third is hydroelectric. To make wind and solar part of its portfolio, it invests in the technology and also buys energy produced by renewable sources, even if it doesn't have infrastructure in place to sell that electricity to customers. That power becomes available wholesale. A company that has the infrastructure—or access to infrastructure—to transmit that power to a customer base could buy it wholesale and sell it for a profit. For example, in Texas, the Public Utility Commission calls such operations Retail Electric Providers. It can buy excess power and resell it directly to customers. The top company on the 2010 Inc. 500 list, Ambit Energy, grew 20,369 percent in three years buying wholesale electricity and selling it direct to customers. Regardless of your approach, look to state and federal incentive programs that make renewable energy improvements widely accessible.
Dig Deeper: Bringing Power to the Poor
Breaking Into the Green Energy Business: Follow the Incentives
In an effort to seduce constituents to change, state governments are making grant money and tax incentives available to residents and business owners that shift to renewable or efficient energy. Last year's $50 billion in federal stimulus money went to bolster that cause. For businesses that are even loosely associated with "green," these incentives can create a customer base that, with a little help, will purchase and install big-ticket items.
For example, the Energy Trust of Oregon since 2002 has offered financial assistance for people who want to upgrade their energy efficiency. Through state law, the Oregon Public Utility Commission ordered its two largest public utilities to collect a 3 percent so-called public purpose charge from their customers; that steady source of revenue from power customers ultimately goes to home and business improvements that over eight years, the organization reports, have saved customers $600 million in energy costs. Residents have the option of cost-sharing or tax breaks for weatherization improvements; heating and cooling upgrades; water heating; transfer to solar power; and purchasing energy-efficient appliances.
Hammer and Hand, Inc., a contractor based in Portland, Oregon, that specializes in energy-efficient residential and commercial building, joined Energy Trust of Oregon last year once it started offering home-performance evaluations. The evaluation offers certified energy audits and retrofits, and helps find incentives to pay for them. "The expansion was a logical progression for us," says Zack Semke, Hammer and Hand's director of business development. "Because we're passionate about building science and about improving energy performance of a home environment, this is a way to get at a low-hanging fruit—building performance—as opposed to the more aggressive, comprehensive approach," such as the company's larger-scale passive house contracting. Passive houses use 90 percent less energy than typical construction. "We're busy with assessments all the time, we're doing lots of home energy retrofits, and that's all related to Energy Trust," Semke says.
North Carolina State University has a database—the Database of State Incentives for Renewables & Efficiency—of state-by-state energy efficient grant dollars and tax cuts available for renewable energy and energy efficiency improvements. For businesses, that means an easy way to see where profit potential lies. According to the database, all 50 states have financial incentives for renewable energy in the form of personal, corporate, sales or property tax incentives, rebates, grants, loans, or bonds. The database shows all 50 states and six U.S. colonies have 1,380 incentives—77 percent of those rebates—for energy efficiency. As far as renewable energy, 50 states and two colonies have 1,005 incentives—46 percent of those rebates—available.
There are a multitude of tax breaks at the federal level and in most states to help solar and wind power businesses. The federal renewable energy production tax credit (set to expire December 2012), for example, credits 2.1 cents per kilowatt hour produced.
Dig Deeper: Say Yes to Solar
Breaking Into the Green Energy Business: Consider Contracting
According to the U.S. Department of energy, U.S. agencies could save $200 million a year in energy costs. For businesses looking to break into green energy, that means a chance to bid on a large pot of projects in coming years, and earn a portion of the $10 billion of spending annually on energy-using projects.
"There are a lot of federal contracts coming up," Titone says, pointing to FedBizOps, fbo.gov, for listings and information on contracts. "Initially they won't get a major contract, but they can work their way up. The best way for a small business to break in if they have current technology is to be a supplier to or subcontractor for a major contractor. … It's still competitive, still a lot of marketing, but it's a good way to break in."
Federal government needs are expansive, the Department of Energy wrote in a 2008 guide, "Selling Energy-Efficient Products to the Federal Government." So when pursuing energy efficient and renewable energy projects by contract, "The key is understanding the best route, best niche for sales of your product … via energy-saving performance contracting or large construction work, or some combination, and pursuing it accordingly." Small businesses are given some advantage: The Department of Defense and General Services Administration purchase the bulk of services and supplies for the U.S. government. They both have programs specifically to counsel small businesses, veteran-owned businesses, and woman-owned businesses (see the GSA's Office of Small Business Utilization Overview and the DOD's Office of Small Business Programs) on how to compete for bids to sell products or services.
However, most government energy savings performance contracts and utility energy service contracts to upgrade efficiency in government buildings are separate from the primary purchasing agencies, according to the Department of Energy guide. "These contracts enable agencies to obtain new capital equipment, improve the indoor environment, and reduce pollution," the guide reads, meaning federal agencies may go to the private sector to make energy and water efficiency improvements; that opens doors for design firms, contractors, manufacturers, roofers, and companies that create or install lighting and plumbing.
"Do your research," Titone says. "Make sure you're prepared, because if you get in a contract and don't perform… The biggest thing we don't want to see folks do is jump in when they're not prepared. There's free help." The Small Business Administration offers free classes on contracting through its business development centers and district offices.
Federal contracts are awarded through a competitive bid process. The bids are announced on an agency's website and publicized through solicitation lists; a business is advised to sign up for the lists of agencies most likely to use its product or service.
To enter the federal government's consciousness for closed bids or regional projects, join the Business Partner Network, a central source for federal agencies to access vendor information. The network ties to the Department of Defense's Central Contractor Registration, the Small Business Administration's PRO-Net database, and FedBizOps, a site that posts government needs for products and services.
Dig Deeper: Greening the City's Rooftops
Breaking Into the Green Energy Business: Become "Green" Certified
As the field of green becomes saturated, the Small Business Administration advises differentiating your business by becoming certifiably "green." Many residents who are using incentives to improve their energy efficiency or switch to renewable energy are probably concerned about eco-friendliness, and will seek out companies that appear to share their values. Federal agencies are required to look for businesses that can provide services with the most energy efficiency, and in some cases will specify in bids that those companies will receive preference.
Many states have their own standard of green certification. The Oregon Energy Trust, for example, has more than 1,000 "trade ally contractors"—contractors, manufacturers, and installers the organization supports as providing energy efficiency improvements and renewable energy products or installation in a responsible manner. Hammer and Hand is an allied contractor, and is also affiliated with 14 other organizations that certify the business. Semke says the certifications—ranging from Building Performance Institute to Energy Star—"prove we know what we're doing. It's an advantage to have a third party vouching for quality work," he says. "In a sense we've been vetted, and also, each one of these certifications shows we have a body of knowledge that has been tested."
Aside from state- and region-specific certifications, there are national certifications for contractors: Passive House Institute US, Efficiency First Home Performance Contractor, and Leadership in Energy and Environmental Design, known by its acronym, LEED. For other small businesses, it might be worth checking out Green-e, Green Business Certification, Green Seal, and Energy Star.
Residents, businesses and government are all shifting toward green, and more and more assistance is breaking down financial barriers and making green energy widely available—giving it profit potential for your business.
Dig Deeper: Landing Government Contracts
Category: Business ideas